Why Exelon may cut its Illinois nuke output

Exelon Corp., the largest power generator in the state, may move to curtail output from some of its Illinois nuclear plants when spot electricity prices in the market dive to ultra-low levels.

The Chicago-based power giant, which also owns Commonwealth Edison Co., said it had a pilot arrangement in the spring with regional power grid operator PJM Interconnection to reduce capacity by up to 10 percent at some of its Illinois nukes. Under the program, Exelon couldn't decide on its own to cycle down its nukes. It could happen only when PJM informed the company that wholesale prices in Illinois were likely to go “negative,” meaning the generator actually would have to pay to offload its power onto the grid.

The company said that didn't occur in the spring. The pilot program has expired but could be revived for the fall — which like spring is another season when low demand can result in negative prices, Exelon said.

Exelon CEO Chris Crane has complained that the growing number of Midwestern wind farms, which produce power when the wind blows whether there's demand for it or not, have caused negative pricing at times, particularly at night when demand is low. That pinches margins at nuclear plants, which are designed to run 24 hours a day.

“Nuclear cycling — which is operationally difficult and only practical with certain units at certain times — is a short-term option we could exercise, under PJM's direction, during hours when negative pricing occurs and baseload generating units have to pay to operate,” Exelon said in a statement.

Nuclear plants, unlike those fueled by coal or natural gas, are designed to run all the time and typically shut down once every other year for refueling. Exelon owns six nuclear stations in Illinois, which supply half or more of the power consumed in the Chicago area.

Over the long term, Exelon said in its statement, wind subsidies need to be eliminated and more aging coal-fired plants need to shut down in order to restore balance to supply and demand in Illinois.

PRICES HURTING PROFITS

Illinois' low wholesale power prices, created by excess supply, are benefiting households and businesses in the form of low electric bills. But they're reducing profits for Exelon, which had to cut its dividend 41 percent earlier this year.

David Kolata, executive director of the Citizens Utility Board, expressed concern, saying he wanted more information on Exelon's understanding with PJM. PJM employs an independent market monitor, who serves as something of a referee in how the regional power market operates. Mr. Kolata said he wanted to know whether the market monitor had been consulted.

In the meantime, he said he found it ironic that Exelon, which has championed a market-based approach to electricity service, now is asking for relief from the effects of the market.

“It's the flip side of a market structure they've advocated for and benefited from,” he said.

An Exelon spokesman said the PJM market monitor was made aware of the pilot program for the spring and expressed no apparent objections.

Environmental advocates bristle at Exelon's blaming of the wind power industry for the woes at its nuclear plants. They say a host of causes are at play, from new natural gas plants to slack demand for power because of more efficient consumption.

And deliberately cycling down nuclear plants raises questions of whether the actions will artificially raise prices for businesses and households.

“While the rationale is straightforward, complications regarding market manipulation rules in PJM remain a key learning obstacle around the more aggressive deployment of its portfolio (Exelon is actively partnering with PJM to understand the limits of the strategy),” Julien Dumoulin-Smith, an analyst at UBS Securities LLC in New York, wrote in a June 18 report.

“This is going into a hornet's nest of issues,” said Howard Learner, executive director of the Environmental Law and Policy Center, an ardent supporter of wind power.

(Editor's note: The frequency that plants typically shut down for refueling has been corrected in this updated story.)